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Manufacturers push for price target on power

Manufacturers push for price target on power

The nation’s biggest manufacturers have called for an electricity price target after energy giant AGL said replacing the Liddell coal-fired plant with
a green energy mix would need power prices to be higher than they have been recently in NSW for a new plant to be profitable.

AGL at the weekend formally rejected Malcolm Turnbull’s request for the company to extend the life of the 45-year-old Hunter Valley plant beyond its
planned 2022 closure, instead delivering a plan that could be committed to in stages over the next five years at a cost of $1.36 billion —
if it was economical to do at the time.

AGL says the plan is cheaper per megawatt hour than a five-year extension of the ageing Liddell, but the cost will be higher than average NSW power
prices at any time before last financial year. The cost of generation under the new plan will also be greater than many estimates, including from
the Finkel review, of building new coal-fired power.

“For customers, the only test that really matters is whether this plan actually lowers electricity prices, because anything less would be failing customers,”
Manufacturing Australia chief Ben Eade told The Australian.

“It’s obvious our energy sector is transitioning to a different generation mix, but regulators should ask themselves whether we need a target on prices
during that transition, just like we have for emissions and energy ­security.”

AGL said the plan to replace Liddell with a mix of renewable energy, gas-fired power, batteries and demand management would have a lifetime break-even
cost (known as levelised cost of ­energy) of $83 a megawatt hour.

“That price ($83) would categorically be too high for a number of sectors in manufacturing,” Mr Eade said. “It would still see us on the high side
internationally, and in a country where our natural resources endowment is our competitive advantage, we ought to be able solve clean, reliable
and affordable all together.”

This compares with a $106 per MWh LCOE for a five-year extension of Liddell, which would have a $920 million upfront cost.

So while replacing Liddell is cheaper than extending it, payback will require prices around last financial year’s record average NSW price of $88 a
MWh and well above average annual prices of $36 to $56 experienced in the 10 previous years.

In Chief Scientist Alan Finkel’s review of the security of National Electricity Market earlier this year, he said the average LCOE of the most efficient
coal plants was $76 a MWh.

On a note on its website at the weekend, AGL said the long-run marginal cost of wind power (without associated storage) was $60 a MWh and that of black
coal was about $68.

This cheaper coal estimate apparently referred to a power plant that would have its own mine, not Hunter Valley ones.

So costs of about $100/MWh which have been listed in other AGL presentations, are more in line with the company’s expectations for NSW.

The Prime Minister on Saturday denied AGL had delivered a rebuke. Instead, he claimed Canberra had simply demanded the company prove shutting Liddell
wouldn’t result in a gap in baseload power on the east coast.

“One way to do that is obviously to keep the plant going for a few more years,” he said. “(But now) AGL has got a plan which they have produced for
the first time which they say will meet that gap. It is being examined by (market operator) AEMO.”

The suite of new AGL projects would require financial investment decisions between 2019 and 2022 to be ready to supply the 1000MW of reliable power
that AEMO has said will be needed to replace it. The gap may be filled by other big power providers, with Energy­Australia last year saying the
­energy policy certainty that has so far been unachievable could see it invest $1 billion in NSW gas plants to replace Liddell.

Mr Meade said Manufacturing Australia was not saying a binding target was needed. “At the moment we don’t have anything we’re shooting for, price is
just left to free float and, surprise surprise, it floats up,” he said.